CTFA STUDY QUESTIONS AND ANSWERS

What is a J curve - Answer-The return pattern of private equity funds. The cumulative return is negative in the early life of a bond before turning positive. This is because in the early life of a private equity fund there are expenses incurred in the search for attractive investments but there are not any investments to generate returns. True or false? Private equity investing is an excellent source of liquidity. - Answer-False. Since private equity is not traded on any market, and investor should be prepared to have no access to their money for an extended period of time example term of 10 to 12 years. How often are hedge fund incentive fees paid? - Answer-Annually How often are private equity fund incentive fees paid? - Answer-When the investments are actually sold at a profit. What is a closely held corporation? - Answer-A corporation for which more than 50% of the value of its outstanding stock is owned by five or fewer individuals. There are generally no public investors in a closely held corporation. What are the primary components of the A-B estate plan? - Answer-The marital deduction. Credit shelter trust. What are the two trust commonly used under the A - B estate plan called? - Answer-The credit shelter trust. The marital deduction trust. Why are the assets in a marital deduction trust tax deferred? - Answer-Because the assets utilize the unlimited marital deduction. True or false. While the assets of the marital deduction trust utilize the unlimited marital deduction, the assets remaining in the marital trust at the surviving spouse's death are not included in and taxed as part of the surviving spouse's estate. - Answer-False. They are included in the surviving spouse's estate.What is the primary purpose of the credit shelter trust? - Answer-It is designed to pass family wealth, ultimately to one's descendants, while also making trust property available to the descendants surviving spouse during the spouses lifetime. True or false? During the life of the surviving spouse, the credit shelter trust may provide for mandatory distributions of income, or it may give the trustee discretion when determining how much, if any, of the trust income and principal is to be disturbed. - Answer-True. What is a spray or sprinkling trust? - Answer-I spray provision generally gives the trustee the right to retain income in the trust what you divide income among the settlers spouse and descendants as the trustee determines advisable for their health support and reasonable comfort and education. The Bretton Woods system led to the creation of what to entities? - Answer-The Bretton Woods system led the creation of the international monetary fund (IMF) and the international Bank for Reconstruction and Development now known as the World Bank. What was the original purpose of the international monetary fund? - Answer-The international monetary fund was designed to monitor exchange rates and lend reserve currencies to nations with trade deficits. What was the purpose of the World Bank? - Answer-To provide underdeveloped nations with needed capital. The equation VO=D1 (K-G) assumes which of the following? A. No dividend growth. B. Constant dividends. C. Variable dividend growth. D. Constant dividend growth. - Answer-D. Constant dividend growth. According to the CAPM, A stock with a beta of 1 should have an expected return of this:A. Equal to zero. B. Equal to the expected market return. C. Greater than the expected market return. D. Less than the expected return. - Answer-B. Equal to the expected return of the market. Neutral... Not zero. If an investor was uncertain about the future direction of interest-rate movements, the investor most likely would: A. Letter bond to rations. B. Increase bond maturities . C. Increase the portfolios duration. D. Lower the portfolios duration. - Answer-D. Ladder bond durations